Hidden rise and fall codes: How does global liquidity influence the trend of Bitcoin?

Bitcoin's price movements are often analyzed through on-chain data, technical indicators, and macroeconomic trends. However, a severely underestimated but extremely important factor is global liquidity. Many investors may not fully utilize this indicator, or even have misunderstandings about how it affects Bitcoin's cyclical trends.

1. The impact of global liquidity on Bitcoin

With the heated discussion about global liquidity on platforms such as Twitter (X), and analysts' in-depth interpretation of liquidity data, understanding the relationship between global liquidity and Bitcoin prices has become a must for traders and long-term investors. However, recent trends have deviated from traditional expectations, indicating that the market may need a more nuanced analytical perspective.

Global M2 money supply refers to the sum of all liquid currencies, including cash, demand deposits, and quasi-monetary assets that can be easily converted.

When global M2 expands, capital typically flows to high-yield assets, including Bitcoin, stocks, and commodities, driving prices up.

Conversely, when M2 contracts, market liquidity tightens, and risky assets often face downward pressure on valuations.

In the current market environment, the traditional relationship between liquidity and asset prices may be changing, which requires investors to have a higher level of understanding.

Historical Trends: Divergence between Bitcoin Price and Global M2 Trends

In the past, Bitcoin prices have generally risen with the expansion of global M2 money supply, and faced pressure when liquidity contracted. However, in this cycle, we have observed a clear deviation: despite the continued growth of global M2, Bitcoin's price trend has shown inconsistency.

2. Year-on-year change: a more accurate measure of liquidity

Instead of focusing solely on the absolute value of global M2, a more insightful approach is to analyze its year-on-year change rate (YoY). This indicator reflects the speed of liquidity expansion or contraction, thereby revealing a clearer correlation between Bitcoin's price performance and liquidity.

When we compare Bitcoin's year-on-year return (YoY Return) with the year-on-year change (M2 YoY Change) of global M2, we can find that the correlation between the two has increased significantly.

Bitcoin's strongest bull market phases often occur during periods of rapid liquidity expansion.

Liquidity contraction usually precedes a pullback or long-term consolidation of Bitcoin's price.

This finding suggests that investors need to pay more attention to changes in the growth rate of global liquidity, rather than just the absolute level of liquidity.

For example, during the consolidation phase of Bitcoin in early 2025, although global M2 grew steadily, its growth rate tended to stabilize. Only when the expansion rate of M2 accelerated significantly, Bitcoin could break through new highs.

3. The lag effect of liquidity

Another key observation is that the impact of global liquidity on Bitcoin is not immediate. Studies have shown that Bitcoin's price usually lags behind changes in global liquidity by about 10 weeks.

If the global liquidity index is moved forward by 10 weeks, the correlation between Bitcoin's price trend and its performance will be significantly enhanced.

After further optimization, it was found that the most accurate lag period is about 56 to 60 days, or about 2 months.

This lag effect means that investors need to consider the time delay when analyzing the impact of liquidity on Bitcoin, rather than just focusing on the current liquidity level.

4. Bitcoin Outlook

For most of 2025, global liquidity entered a sideways phase, after a strong expansion at the end of 2024 pushed Bitcoin to a new high. This period of liquidity sideways coincides with Bitcoin's consolidation and pullback to about $80,000.

However, if the historical trend still works, the recent rebound in global liquidity is expected to bring a new round of gains for Bitcoin around the end of March.

5. Conclusion

Global liquidity is an important macro indicator for predicting Bitcoin's trend. However, instead of relying on static M2 data, a more effective approach is to focus on the rate of change of M2 and understand the impact of Bitcoin prices, which usually lags by about two months.

As the global economic environment changes and central banks adjust their monetary policies, Bitcoin's price will continue to be affected by liquidity trends. The next few weeks are crucial - if global liquidity continues to expand at an accelerated pace, Bitcoin may usher in a major market.